Speaker 1: Let's get to our guess. Jack McIntyre's portfolio manager at
Speaker 1: Brandywine Global joining us from Philadelphia. Great to have you
Speaker 1: with us, Jack. So we have these global tightening expectations
Speaker 1: on the rise. We were just talking about the A, B,
Speaker 1: and Z overwhelmingly expected to hike for a fourth month
Speaker 1: today and that would take their total cash rate hikes
Speaker 1: to three basis points over the past twelve months. Is
Speaker 1: there a risk here though, what we're seeing with global
Speaker 1: central banks of overtightening and does that mean that a
Speaker 1: recession is really the only cure to kind of reign
Speaker 1: in inflation here? Yeah, it's really that's the sixty four
Speaker 1: million dollar question because we have to find out. Yeah,
Speaker 1: you know, inflation has come down. It's great to see
Speaker 1: commodity prices of oil, but to get us down meaningfully, uh,
Speaker 1: you know, you're gonna have to see weakness in the
Speaker 1: labor market the stick your inflation, and that the question is, right,
Speaker 1: do we need to see a shift towards recession to
Speaker 1: get that type of inflation lower? And the urban Z
Speaker 1: is in the same spot as a lot of central banks.
Speaker 1: You're you're tightening into slowing economies right now. So certainly
Speaker 1: you increase the risk of recession. But it's you know,
Speaker 1: it's fascinating because when you look at the way risk
Speaker 1: ascids equities are trading, uh, they're not trading as though
Speaker 1: there have recession concerns. No, absolutely not. So does that
Speaker 1: kind of mean that we're sort of at perhaps a
Speaker 1: bear market pause rather than a sustained rally. We're continuing
Speaker 1: to see, uh, some upside momentum. I guests in in
Speaker 1: these markets and we're asking as well, do you see
Speaker 1: temper cent higher next for the SNP five D or
Speaker 1: do you go down again? In terms of a bit
Speaker 1: of a pause. Yeah, I'm still a little bit more
Speaker 1: cautious right now. I get it. I understand you know, uh,
Speaker 1: you know, oil, as I mentioned, oil prices are down,
Speaker 1: consumer confidence things have improved, so equity prices have obviously
Speaker 1: rally pretty significantly. But I don't think we're out of
Speaker 1: the woods yet, because I do still think that the
Speaker 1: again I'm taking central banks at face value, that breaking
Speaker 1: the back of inflation is job one, no matter what takes,
Speaker 1: whether it takes uh you know, pain in the labor market,
Speaker 1: in the actual economy. So obviously I could be wrong,
Speaker 1: but I would not be a buyer of equities right
Speaker 1: at these levels. All right, so you're being a little
Speaker 1: bit more cautious. We did see that Bank of America
Speaker 1: Investors survey uh suggests perhaps that investors are stepping back
Speaker 1: from their recent record pessimism. But what kind of moves
Speaker 1: it down next? I mean, we've got the f O
Speaker 1: m C coming up in September. We've also got checks
Speaker 1: and hold too later this month. Yeah, and that's uh,
Speaker 1: certainly critical. And you obviously have the Minutes tomorrow, although
Speaker 1: I don't think we're gonna learn a lot because right now,
Speaker 1: I mean, the Fed is is giving us their roadmap,
Speaker 1: and that's you know, hit it hard, tighten policy aggressively.
Speaker 1: And then we also next month you have the maximum
Speaker 1: sort of pain coming from quantitative tightening as well. So
Speaker 1: it's really you know, raise rates significantly now. And then
Speaker 1: the question is not just you know, are they gonna
Speaker 1: be cutting next year, but how long are they gonna pause? Uh?
Speaker 1: And I think the message that we're gonna hear from
Speaker 1: the Fed is that, hey, that pause might be longer
Speaker 1: than what the market expects. I wanted to pick up
Speaker 1: on why you are nervous but underweight the dola here. Yeah, truly,
Speaker 1: this is and I am nervous because the dollar obviously
Speaker 1: has been very strong. Um, you know, it's the risk
Speaker 1: off currency. Obviously we're in a risk on environment, so
Speaker 1: the dollars we can But when you take a step
Speaker 1: back up, you know, there's two reasons why I want
Speaker 1: to underweight the dollars. First is, you know, the if
Speaker 1: oil prices continue to lower, commanding prices inflation is peaked
Speaker 1: to FED might not ultimately have to tighten as much
Speaker 1: as what's getting discounted in the market. Uh. However, the
Speaker 1: flip side, though, if we're wrong and the FED titans
Speaker 1: and has to tighten more aggressively, the odds of recession
Speaker 1: increase in the US. So you know, and again I
Speaker 1: understand it could be a period where you do get
Speaker 1: some dollar strength, but if you look out, relative growth
Speaker 1: differentials are gonna be big. And if the US is
Speaker 1: heading towards the recession, I gotta think the US dollar
Speaker 1: is gonna weekend. And and lastly, you've been hearing a
Speaker 1: lot of pressure from corporate sector about the strength of
Speaker 1: the dollar, and that typically is associated with the turning
Speaker 1: point in the dollar. What about the consumer though, and
Speaker 1: what that's telling us about the real economy. I mean,
Speaker 1: we're talking about last month Walmart cutting its profit forecast.
Speaker 1: Now it's got a bit more of an upbeat tone. Yeah,
Speaker 1: but I'm still in this camp. We're gonna go through
Speaker 1: some goods deflation. I don't think there's a lot of
Speaker 1: pent up demand from the consumer to buy goods. They've
Speaker 1: been buying goods for the last two years and here
Speaker 1: and you know the Walmart news. I mean, remember you
Speaker 1: had upper income earners shifting and increasing their purchases at Walmart.
Speaker 1: We saw that post GFC, So you know, I'm not
Speaker 1: sture on the surface that is a net postive for
Speaker 1: the consumer. Alright, We've been watching a big move in
Speaker 1: the bond market globally this week, and none so more
Speaker 1: than what we've seen in China. And this is very much,
Speaker 1: I guess, reinforced by that divergence with what you're seeing
Speaker 1: with basuries as well. China is still very much in
Speaker 1: a slowdown mode and more stimulus has perhaps needed. But
Speaker 1: what does that big spike lower in China Tania yields
Speaker 1: tell you? Yeah, it tells me. Uh, it confirms what
Speaker 1: the data has been telling me, is that China is struggling.
Speaker 1: They're they're they're they're slowing down, uh, seeming precipitously, the
Speaker 1: credit impulse is going to probably roll over in here.
Speaker 1: So bigger picture, I view China sort of being a
Speaker 1: disinflationary impulse for the broader global economy. I wish I
Speaker 1: owned Chinese bonds. I didn't and don't, but I think
Speaker 1: as China bonds rally, that's probably gonna be a good
Speaker 1: environment for some of those higher yielding e M bonds
Speaker 1: because as China slows down, could be disinflationary. And you know,
Speaker 1: if we see lower commanded prices, that's gonna put downward
Speaker 1: pressure on e M inflation because food and energy is
Speaker 1: a bigger part of their CPI basket, and that actually
Speaker 1: could be a net positive form bonds. Yeah, and you say,
Speaker 1: as well, em equities finally attracting influence. But to quote
Speaker 1: you as well, not all e M created equally, Which
Speaker 1: are you sort of favoring amongst emerging markets. Yeah, So
Speaker 1: where the biggest dislocation is from an inflation standpoint, and
Speaker 1: that's more in Latin America. I mean, one of the
Speaker 1: things that I've been impressed with with the central banks
Speaker 1: in Latin America's that they've taken their real so inflation
Speaker 1: adjusted policy rates positive right now, so they've had a
Speaker 1: big commitment to breaking the back of inflation. Uh. And
Speaker 1: I think again, I expect to see continuing weakness and
Speaker 1: commodity prices because of China slow down. So that could
Speaker 1: be kind of a situation where those central banks either
Speaker 1: go on pause before we see in the developer world
Speaker 1: or start cunning rates. Jack, just finally, let's send it
Speaker 1: in on a positive note. I mean, what, what is
Speaker 1: something that you are seeing that is you know, potential
Speaker 1: upside here because there are a lot of concerns as
Speaker 1: we've discussed about inflation, about recession, but anything kind of
Speaker 1: taking your fancy. Uh, it is just the e M assets.
Speaker 1: I would tell you that Dave lagged for a long
Speaker 1: time now. I think the surprise would be that they
Speaker 1: continue to track capital. They've been under invested, both from
Speaker 1: a retail and institutional investors standpoint, So I expect them
Speaker 1: to do well, all right, and lets him as you
Speaker 1: mentioned in particular, Thank you so much. Jack. Jack McEntire,
Speaker 1: portfolio manager at brandy one Global, on the line from
Speaker 1: Philadelphia for US here on Bloomberg Daybreak Asia,